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05 July 2017

Finance Minister dragged to Parliament over “419 VAT rate”

The Finance Committee of Parliament has summoned the Finance Minister Ken Ofori Atta to an emergency meeting Thursday.

The meeting is to probe further details and explanation for the controversial 3% flat rate tax that has been introduced by the government.

The 3% VAT rate came into effect on July 1, 2017 following the passage of Act 948 to amend the Value Added Tax Act, 2013 (Act 870).

The amendment gives legal backing to a new VAT Flat Rate Scheme (VFRS) of 3% that will facilitate collection of VAT & National Health Insurance Levy (NHIL) on the supply of goods by wholesalers and retailers; and classifies the supply of financial services, domestic air transportation and sale of immovable property by real estate developers as exempt supplies.

The implementation of the tax policy has triggered some deep seated controversy.

Some industries, manufacturers and importers claim the implementation of the new tax law will lead to the increase of prices of goods and services, a claim government and officials of the Ghana Revenue Authority have been quick to dispute.

Ahead of the Finance Minister’s appearance before the Finance Committee of Parliament, Thursday, a former Deputy Finance Minister has been vehement in his criticism of the new tax regime.

Describing it as a ‘419’ or a fraudulent taxation regime, Casiel Ato Forson said government must listen to the concerns of manufacturers and importers and withdraw the tax.

“All of a sudden the VAT burden instead of it being reduced has become an increase. This is because the value added flat rate only relates to retailers. For some reason, the government decided to include wholesalers.

“Globally the practice has been to give only retailers 3% because the input-output turns out to become approximately 2.9% which is equivalent to 3%.

“If you are to extend to wholesalers it is an imposition of an additional tax,” he said, adding, “what they are doing is a 419 way of imposing taxes on the ordinary Ghana. They tricked Ghanaians into introducing additional tax,” he alleged.

But in a reaction, the Deputy Information Minister Kojo Oppong Nkrumah said the 3% flat rate is neither an additional tax nor a new tax.

He said it is only a new way of calculating the old value added tax.

“Traditionally to arrive at the value Added Tax you needed to calculate 17.5 on the cost of input, 17.5% on your final sales price, you will net off the difference and you will pay the net VAT to government.

“The challenge is that a lot of people find it difficult to comply with the paper work and the computations and so you will find a lot of evasions in the VAT bracket. It is for that reason that, not just in Ghana but in many other countries the VAT regime is gradually being moved to a flat rate.

Under this new policy you will just have to pay 3% on your turnover without the cumbersome calculations, he explained.

The new policy only affects wholesalers and retailers but excludes services, he added.

Kojo Oppong Nkrumah believed the 3% flat rate should not lead to an increase in prices of product if calculated properly.

He said if it is done properly, prices of commodity will rather come down.

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